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Landmark Supreme Court decision lets states force online stores to pay sales tax

Image used with permission by copyright holder

The online marketplace now looks a lot more like its offline counterpart — at least, when it comes to taxes. A contentious case has reached a rather contentious ruling in the Supreme Court today, and in a 5-4 decision, the highest court in the United States ruled that states can indeed collect sales taxes from ecommerce retailers. The ruling overturns a 1992 precedent that previously prevented states from forcing businesses without a “physical presence” from collecting sales taxes. As a result of this new decision, states will be able to potentially collect billions of dollars worth of sales taxes from online retailers huge and tiny, from Amazon to Avenue.

The ruling comes down against online retailers Wayfair, Overstock.com, and Newegg. The companies have warned that, as a result of the decision, similar companies may have to face around 12,000 local tax jurisdictions, which could lead to some serious chaos. It also means that if you previously turned to the internet in order to get a lower, tax-free price for a product you initially saw in a brick and mortar store, you’ll no longer be able to save the same kind of money. In short: Party’s over.

Justice Anthony Kennedy authored the decision, with support from left- and right-leaning court members alike, including Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito, and Neil Gorsuch. “The Internet’s prevalence and power have changed the dynamics of the national economy,” Kennedy wrote. “This expansion has also increased the revenue shortfall faced by states seeking to collect their sales and use taxes.”

However, Chief Justice John Roberts, along with Justices Stephen Breyer, Sonia Sotomayor, and Elena Kagan, dissented, noting that this new tax structure could disadvantage smaller sellers.

“The burden will fall disproportionately on small businesses,” Roberts wrote in his dissent. “The court’s decision today will surely have the effect of dampening opportunities for commerce in a broad range of new markets.”

But don’t go panicking quite yet. As it stands, the ultimate effect of the ruling remains unclear, as online stores will have to gain more clarity on exactly what their own businesses and customers will have to do as a result. Online commerce, of course, is a booming industry, one that is expected to reach a whopping $4.5 trillion by 2021 globally. And as of 2017, 96 percent of Americans shopped online. Currently, the Supreme Court’s decision will only immediately affect South Dakota, who has been trying to collect taxes from e-commerce stores with more than $100,000 in annual sales of 200 transactions in the state.

Of course, we should point out that a majority of the most popular online sellers already collect taxes in almost all eligible U.S. states, as they have local showrooms or warehouses, or due to state laws. The 100 most popular e-commerce stores represent about 90 percent of taxes owed.

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